Freedom From A Mortgage On An Average Income
Financial Hipster is all about being transparent and honest about money and learning about what others have done to build financial freedom. So I feel its important to tell our story in hopes it allows others to create a financial plan that works for them. My wife and I don't make that much money, we've never made more than 100k in total combined income.
How We Avoided A Mortgage
"We saved 80% of the total sale price of our home, 20% was investment earnings."
I was fortunate to come out of school with no debt and a little bit of savings from working through college. Though I have never been given an inheritance, I did start with no debt. Which was huge coming out of school. I thank my parents every chance I get that they were able to provide me with an education.
"Eat hamburgers - instead of steak"
Upon graduating from college, I was able to land a job making 35K a year. Not too bad at that age - at least I thought so. That first glimpse of your own money is a pretty exciting time! Luckily for me, I had good mentors and had learned the value of compound interest, time value of money and the benefits of savings.
One of my college professors told me...and I still remember it today - "When you get out of college you'll make a lot more money than you are used to having, but eat hamburger instead of steak." From then on, I was hell bent on saving whatever I could. I put away 10% of my earnings in retirement - $3,500 a year felt like a lot back then!
"Be Different. Live simple. Pay in cash. Paying interest now makes it really hard to save in the future."
My first big purchase came a year or two out of school. I had saved up some money and bought my first car in cash. I still drive that same car 10 years later. It was about time that my college beater was retired. It was not in good shape. No seriously, a retaining wall fell on it in college during a thunderstorm, but that's a story for another day...
So I bought a black Chevy Malibu in cash. As a cool, smooth young professional, in my “kick ass” Chevy I was making it. Sort of. At the time it felt like I was saving a lot, but through my lens now, it really wasn’t that much, but that little bit gave me a huge jump start on building for my future.
"It's not where you live, but who you're around."
Don't fall into the illusion that you are wealthy because you make 50k a year and you're in your 20's. Life has many expenses ahead and the sooner you can start saving the more you'll appreciate your 20 something self in the future.
I continued to room with friends and rent for about 500 bucks a month. All while continuing to save whatever I could for the next 3-5 years. Saving young was a huge part of achieving my financial goals. As my savings slowly grew, I started to see the progress I was making and I continued to save 10-15% in retirement, sometimes as much as 20%. I also contributed the max of $3,500 to a Roth IRA on top of that (now $5,500). I figured I could always use it for a house down payment if I wanted to or take out what I contributed.
Find Someone With the Same Financial Goals
"Make sure everyone in your 'boat' is rowing and not drilling holes when you're not looking."
Surround yourself with like minded people. You'll never succeed if you're bailing water and someone else is drilling holes in your boat.
I got married in 2012. We moved in together and rented an apartment for $700 a month. We were 26 years old and making less than 100K combined before taxes. I was reading every finance book I could find, including Dave Ramsey's Total Money Makeover and 'Rich Dad Poor Dad'. Like I hope this blog can do for other young professionals, these books motivated me to achieve our biggest financial goal, and that was the 100% down payment plan on our first house.
My wife and I set goals together and even given mortgage interest rates at 3%, we held off and continued to save for our dream home. A house that we owned was our criteria for a dream home. We loved the idea of minimalism and tried to purge our stuff at least every 6 months. Our 800 sq. ft. apartment provided us with a cozy place to live and raise our dog while we saved.
"Traveling is fun but it doesn't have to be expensive."
We traveled a lot to see family, friends, and vacations but we never had to spend too much because we were visiting people and finding cheap ways to travel to cool locations. Stay at a family member's house, stay in a hostel or airbnb. Camp! Road Trip!
Also, renting was awesome during this time because we were living a simple low maintenance lifestyle. We stayed in our apartment for four years for this reason as we continued to save.
Early On - Put All Your Eggs in One Basket
There is no way around it - if you are young and want to pay off your mortgage, you have to put the majority of your net worth into your house.
By working ourselves up to saving 50% of our income, we had saved enough to finally buy a house with our savings. In 2015, we were able to find a house for $200,000 in a school district we liked and though it's only 1,340 sq feet, its our dream home because we own it.
When we bought our house, our reserves went down to almost nothing. We barely had $1,000 dollars in cash available that first month. However, the lack of a mortgage payment quickly allowed us to build up our emergency fund again and even spend some money making improvements to the house.
Buy Investments - Not Things
One of the main reasons we are able to save more than 50% of our income is because we don't buy 'things'. We lived simple while still spending on the things that matter to us, like hanging out with friends and traveling.
Investing our savings was crucial to our success. By investing what we saved we were able to cover 20% of the house price with our investment returns.
Small Needs Lead To A Large Life
We had our first child at 30 and our second at 32. This brought many new and exciting priorities in our lives. With our house paid off we slept easy, although not very much with our newborns!
Meeting our financial goals has been so inspiring that we wanted to share our story with others. Hopefully you can find inspiration to achieve your goals and know it's possible - it just takes passion to learn how to do it and then the discipline to follow through with your plan.